Headquartered in Burlington, Mass., Desktop Metal (NYSE:DM) is an additive manufacturing (3D printing) company that’s been around since 2015. However, DM stock has existed on the New York Stock Exchange for less than two years, and its performance has been dismal.
Don’t misunderstand — there was a hype phase in early 2021. During that time, Reddit traders and retail investors bid many low-priced stocks to unsustainable prices, only to watch those stocks crash later in the year.
DM stock is a poster child of the classic 2021 pop-and-drop cycle. Some folks might decide to be a hero and buy the stock at the current price point in hopes of a recovery.
Yet, there won’t likely be any major recovery for Desktop Metal. The company’s financials indicate that the company is spending more money than it’s making, and that trend is unfortunately only getting worse.
DM Stock at a Glance
In late 2020, Desktop Metal went public via a special purpose acquisition company (SPAC) merger. Then the hype phase occurred, as early 2021 was a time of rampant retail speculation. Besides, Desktop Metal was widely touted as it had high-profile investors like Chamath Palihapitiya.
Hence, DM stock ran quickly from $10 in 2020’s fourth quarter, to nearly $35 in early February 2021. A lesson would soon be learned, though, as speculative stocks can fall just as quickly as they can rise.
This is particularly true when the company itself isn’t profitable. In that case, a high-flying stock is floating on air, with no solid basis.
In other words, DM stock was bound to crash sooner or later. The stock tumbled to $15 in March of 2021, followed by $10 in July and $5 in December.
By the end of the year, it had become a penny stock, which can informally be defined as a stock that trades for less than $5 per share. Clearly, the momentum is to the downside and it’s only becoming more difficult to justify a long position in Desktop Metal.
A major part of fiscal discipline is maintaining cost controls. After all, it’s difficult to recommend a business if it spends more money than it makes.
It’s even worse when the spending accelerates over time. Desktop Metal has been particularly prone to increasing expenditures, which have reached into the triple digits percentage-wise.
Thus, during the three months ended Sept. 30, 2021, Desktop Metal reported huge spending increases in multiple business segments:
- Research and development: 110% year-over-year spending increase
- Sales and marketing: 428% increase (no, that’s not a typo)
- General and administrative: 267% increase
- In-process research and development assets acquired: incalculable increase, as this expenditure category went from zero during the three months ended Sept. 30, 2020, to $15.2 million in the quarter currently under consideration
Adding, but Really Subtracting
In case we haven’t made the point convincingly enough, we can also take note of Desktop Metal’s extensive and expensive acquisitions and their associated costs:
- EnvisionTEC: paid $143.8 million in cash and issued 5,036,142 shares of Class A common stock
- Adaptive 3D: $24.1 million paid in cash and 3,133,276 shares of common stock
- Beacon Bio: aggregate purchase price of $10.4 million
- Aerosint: total purchase price of $23.8 million
- Dental Arts Laboratories: $26.3 million paid in cash
- A.I.D.R.O.: $5.6 million paid in cash
- Meta Additive: purchase price consisted of a cash consideration of $15.2 million
- ExOne: a cash consideration of $191.4 million and 48,218,063 shares of common stock
In the final analysis, is Desktop Metal really adding or subtracting with this buyout binge? The company’s accountants should let the management know that more isn’t always better.
As evidence of this, it should be pointed out that Desktop Metal incurred a net loss of $169,167,000 in the nine months ended Sept. 30, 2021. That’s substantially worse than the already worrisome net loss of $65,027,000 incurred in the year-earlier nine-month period.
Cost containment should be a foundational principle for developing businesses in all market sectors. The data indicates that Desktop Metal isn’t applying this principle properly. This should be considered a big red flag for prospective investors.
Meanwhile, DM stock just can’t seem to find a bottom. So, don’t expect the situation to get better anytime soon as fiscal discipline clearly isn’t Desktop Metal’s strong point.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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